why trailing PEG is is: trailig P/E divide by divident growth rate? how dividend growth rate impact the PEG? Thanks. what PEG represent for? Thanks.
There was a debate a while ago on the AF whether that growth is the growth rate of dividends or earnings. I have personally seen it always as a growth rate in earnings. PEG is an indicator of a stock’s potential value. It is favored over the P/E ratio because it also accounts for growth. Similar to the P/E ratio, a lower PEG means that the stock is more undervalued.
Trailing PEG is the P/E multiple divided by the growth rate, which indicates whether a stock is overvalued or undervalued. Clearly, a lower PEG rate indicates undervaluation. It is typical for a high P/E company to have high growth, so in this case, you are simply standardizing the P/E multiple to reflect the potential growth rate. Dividend growth rate will impact PEG through two points: (1) Dividends take away the growth potential of a company as you are deploying cash to the investors instead of ploughing it back to the firm; and (2) P/E is also driven by the desire for investors for dividends (i.e., higher dividends may warrant higher P/E ratio on some cases).